The CPG sector needs to embrace end-to-end digital transformation

The CPG sector needs to embrace end-to-end digital transformation

6th November 2017

By Stuart Richards

Leading CPG players have responded to digital disruption with huge investment in eCommerce. But if they are to truly realise the massive potential growth through the channel they need to embrace an end-to-end digital transformation programme encompassing their entire business process.

New entrants using plug and play e-commerce technology and other distribution solutions to sell directly to consumers have been increasingly disrupting the traditional CPG model with the retailer acting as middleman.

With no legacy systems designed for bulk distribution to retail partners, the new CPG players serving today’s ‘little and often’ consumer have been able to steal a march on the established sector leaders for D2C online sales.

A good example would be Dollar Shave Club. Founded in 2011, it was able to solve an industry problem: razor blades are too expensive. Established products have to do a lot of heavy lifting (marketing, R&D, supply chain costs, sustainable procurement, industry competition) that doesn’t have a positive impact on the consumer’s wallet. Dollar Shave Club spotted an opportunity to differentiate but also wasn’t restricted by wider costs. It was a true disruptor…until it was sold to Unilever in 2016 for $1bn. Warby Parker is another example.

Saddled with the disadvantages of huge cost and complexity in changing traditional business practices, global CPG giants were initially slow to react to the digital transformation agenda. But the sector has latterly been investing huge resources into eCommerce.

So far this has largely been restricted to front end activity including digital marketing, although there have been some notable examples of true digital interaction with consumers. They include UK multinational alcoholic beverages firm Diageo, which launched a smart bottle in 2015 for its iconic Johnnie Walker Blue Label whisky enabling personalised communication to consumers reading the tags with their smartphones and tracking of stock.

But for CPG leaders to capitalise on the huge potential growth in direct online sales to consumers, they need to go a lot further and invest in digital transformation throughout the whole ecosystem of their business.

This means fully digitising back office business processes like finance, hr, supply chain and logistics.

In 2013 eCommerce accounted for under 1 per cent of sales in packaged food and 3 per cent in non-food but by 2020 it is predicted this could rise to 5 per cent of food sales and 10 per cent of non-food sales – accounting for up to 30 per cent of total CPG industry sales growth between 2015 and 2020.*

However, a KPMG survey of 175 global retail and consumer goods CEOs published in September revealed a third were concerned they were “not leveraging digital means to connect with their customers as effectively as possible”. **

Customer-centric strategies being pursued to tackle this include digitisation through technology transformation, greater speed to market, and stronger marketing, branding and communications, the survey found.

Recognising the benefits, the sector is now starting to examine the digital technologies which can help throughout all areas of the business.

In its report How digital reinventors are pulling away from the pack published last month, global management consultants McKinsey&Company conclude: “The reinventors are investing at scale in technology, analytics, and digital talent – not just playing on the margins – and investing much more aggressively in business-model innovations or entirely new business models.”

The report, based on a global survey of more than 1,600 executives, continued: “To find success and sustain growth, incumbents must do two things at once: digitize their core businesses while also innovating with new digital ones. Making small changes to the edges of your business model is insufficient in an increasingly digital world.” ***

HW Global Talent Partner has been helping clients transform their global digital capabilities for the past five years.

We recently completed an executive search assignment for a Sales Director for a tier one courier and logistics firm. One of his key targets is nailing last mile delivery, which has been a significant customer service issue. The company will achieve this by investing in digital technology, making it a more attractive proposition for partners and clients alike.

Other recent assignments include a global CIO search for a tier one food business. With an $18bn P&L they will ensure the organisation has the systems and MI that make it fit for purpose for the next ten years across the entire value chain. In addition, a recently placed VP for Data & Analytics for the same client will translate consumer behaviour and trends into actionable business strategy across marketing, sales, supply chain and logistics.

As an international executive search and professional interim business, HW Global Talent Partner advises many of the world’s most recognised and respected brands, among them the leaders in consumer products and services, and retail operations of all shapes and sizes.

For a confidential discussion about how we can assist you with digital transformation contact Stuart Richards, Consultant in the Global Consumer Practice, at stuartr@hwglobalpartner.com or on +44 (0) 7787 254 600.